Reverse Break-Up Fees and Specific Performance

by Practical Law Corporate & Securities

A Practice Note describing the remedies commonly available to a seller when an acquisition fails to close due to a buyer's breach, financing failure, a buyer's fiduciary out, or regulatory issues. This Practice Note focuses on the most common seller remedies, reverse break-up fees and specific performance, exploring their legal and business considerations. It examines various remedy packages, including full specific performance, damages for willful breach, and conditional specific performance that is often tied to the availability of debt financing. This Practice Note analyzes different formulations, such as using a reverse break-up fee as a cap on damages, and the use of multi-tier fees for different termination triggers. It also touches on related legal issues, such as the application of the prevention doctrine, and practical challenges like timing issues when seeking to enforce specific performance. The guidance covers key negotiating factors, including whether the buyer is a strategic buyer or a private equity buyer, to help parties effectively allocate pre-closing risk.